Improper Capitalization of the amount spent on expenses can overstate the net income which can not be deducted and are needed to be deducted immediately can cause an overstatement of assets.
If there is an improper capitalization of the amount that is spent on the expenses can overstate the net income. These expenses are needed to be deducted immediately, instead, they will be deducted once the assets are until the future period when the assets are depreciated.
This overstatement of the assets can cause a high net income and can higher the risk of financial statement fraud and overstate the net income.
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